We’re living in unprecedented times indeed. Take a look:
On the photo above you can find thre graphs aligned together for comparison reasons (courtesy of “sentimentader” from Twitter):
1. 𝗣𝗲𝗻𝗻𝘆 𝘀𝘁𝗼𝗰𝗸 𝘃𝗼𝗹𝘂𝗺𝗲𝘀 𝗵𝗮𝘃𝗲 𝗿𝗶𝘀𝗲𝗻 𝗼𝘃𝗲𝗿 𝟭𝟬-𝗳𝗼𝗹𝗱 vs. their long-term average
2. Total 𝗼𝗽𝘁𝗶𝗼𝗻𝘀 𝘃𝗼𝗹𝘂𝗺𝗲𝘀𝗶𝘀 𝘂𝗽 𝟮𝘅 vs. long-term average
3. $SPY 𝘃𝗼𝗹𝘂𝗺𝗲, after an initial volatility-driven spike in 1H20, 𝗶𝘀 𝗻𝗼𝘄 𝗯𝗮𝗰𝗸 𝘁𝗼 𝗹𝗼𝗻𝗴-𝘁𝗲𝗿𝗺 𝗮𝘃𝗲𝗿𝗮𝗴𝗲.
Now the question is: Is it sustainable? Is this the new normal? The quickest answear that comes to my mind mid is YES, FOR AT LEAST SOME TIME, BUT SURELY NOT IN THE LONG RUN.
Points 1. and 2. above are a clear function of the following:
👉 The price of money – it has net yet ever in history been so low and the real money balances (Money Supply/Prices) have not ever been so high.
👉 The message from the Central Banks and the fiscal authorities – there has not ever been such an alignment and coordination of extremely expansionary monetary and fiscal policies and the message has not yet ever been as it is (read: limitless support to the economy, especially from the monetary authorities).
👉 Unprecedented volatility of 2020 – even my grandma and my kids ?(7-13 yrs old) heard about wild market swings :).
👉 Sentiment swings – also unprecedented and also including analysts’ consensus sentiment as to the earnings forecasts. First thing (1H20) they got extremely low, and since then they are rebuilding, but slower than the real economy does, causing a wave of upside surprises. As long as the above points play out, and as we know some of them (like the “limitless” policy support message) will play out for quite some time yet, the increased levels of speculation will most possibly persist.
Stay agile and listen to the Fed!